November 13, 2009


How much money could health-care reform save the average American family?

My mind boggles and my head hurts when I hear the nonsensical discussions about how much money it’s going to cost us to enact meaningful healthcare reform! It won’t cost Americans more money. In fact, it’ll save a LOT!

The healthcare plan backed by Senate Democrats would trim the deficit by $81 billion over 10 years while extending coverage to about half of the roughly 50 million people who now lack it. This adds up to a pitiful savings of about $71 a year/family, maybe.

Whatever the plan’s merits, its reputed savings are a pittance next to the total amount America now wastes on health care each year1, and thus, the total amount it could save. In the 1970s, John Wennberg founded a center for evaluating healthcare delivery, known for its influential Dartmouth Atlas of Health Care.  Elliott Fisher, M.D., who today leads Dartmouth Atlas, published a study that looked only at end-of-life care for people with broken hips, colorectal cancer, and heart attacks, broken down by regions. In the regions with the highest spending, patients received 60% more health services, including minor procedures, tests, doctor visits, and specialist use—and for all of it, they were slightly more likely to die. Fisher wrote that if all regions reduced spending to match the low-use regions, Medicare would save 30%2.

This year, Medicare will spend $484 billion. Thirty percent of that comes about $145 billion, or roughly $1,276 per household. But that’s just Medicare. In 2007, the U.S. spent a total of $2.2 trillion on health care; that amount includes spending by government and private payers and out-of-pocket costs. If the 30% waste estimate holds for the whole thing, we’d save $660 billion each year, or $5,811 per household.

These findings enraged critics, who said their methodology was flawed. So this year Fisher and his colleagues published another study using an expanded data set adjusted for differences in income and health. This study found that 70% of regional differences cannot be explained by such factors. The critics are in denial, with each claiming that patients in their area need more care than average3.

On the subject of average, what if the U.S. spent just a little more than the average among its peers in terms of health care? Our country spends over 16% of its gross domestic product (GDP) on health care. Among the 30 members of the Organization for Economic Cooperation and Development, the average is 9%. Suppose the U.S. could get down to the level of France, the second-biggest spender, at 11% of GDP. That’s a savings of 5% of GDP, which for the U.S. works out to about $715 billion a year. That’s $6,296 per household. Not bad, right?

But according to The Institute of Medicine (September 2009), we could do better. It reports the following figures: $210 billion in unnecessary costs, such as using brand-name drugs when generics would do; $85 billion in overspending on overpriced doctors and hospitals relative to benchmarks; $195 billion in unnecessary insurance administration costs… and a lot more. The total comes to $810 billion a year spent enriching corporate coffers at the expense of U.S. citizens. This is more than 100 times the savings Congress is arguing over, and it adds up to a whopping yearly household savings of $7,1324.


Fischer, MD, MPH; David Wennenberg, MD, MPH; Threse Stukel, PhD; Daniel
Gottlieb, MS; FL Lukas, PhD; and Etiole Pinder, MS. (2003) Annals of
Internal Medicine. February 18, 2003; 138(4)273-287.

Fisher, MD, MPH, Julie P. Bynum, MD, MPH, and Jonathan S. Skinner, PhD.
(2009) Slowing the growth of health care costs — lessons from regional
variation. NEJM.  360(9) 849-852, Feb 26, 2009-852.

4The 2009
Rosenthal Lecture, “The Problem of Health Care Costs and the Future
Financial Viability of the U.S.,” featured David M. Walker, President
and CEO of the Peter G. Peterson Foundation.

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